Thyssenkrupp, Tata Steel agree to forge Europe's No. 2 steelmaker

By Christoph Steitz

FRANKFURT (Reuters) - Germany's Thyssenkrupp and India's Tata Steel struck a preliminary deal on Wednesday to merge their European steel operations in a 50-50 joint venture to create the continent's No.2 steelmaker after ArcelorMittal.

The deal will not involve any cash, Tata Steel said, adding that both groups would contribute debt and liabilities to achieve an equal shareholding and remain long-term investors.

The companies say they need to consolidate to address overcapacity in the European steel market, which faces cheap imports from China and elsewhere, subdued demand for construction and inefficient legacy plants.

Thyssenkrupp shares were indicated up more than 5 percent in pre-market trade in Germany while Tata Steel was up 0.7 percent in India.

Tata Steel last month reached a landmark deal that will allow it to reduce 15 billion pounds ($20 billion) in pension liabilities, long seen as the main hurdle in talks between the companies, which have lasted more than a year and a half.

"Under the planned joint venture, we are giving the European steel activities of Thyssenkrupp and Tata a lasting future," Thyssenkrupp CEO Heinrich Hiesinger said. "We are tackling the structural challenges of the European steel industry and creating a strong No.2."

The new company, to be named Thyssenkrupp Tata Steel, will be headquartered in Amsterdam, the companies said in statements on Wednesday after signing a memorandum of understanding (MoU). "Excellent news," tweeted Dutch Prime Minister Mark Rutte.

The MoU, widely expected after Thyssenkrupp last week said a deal could be reached this month, outlines annual synergies of 400-600 million euros ($480-720 million) as well as up to 4,000 job cuts, about 8 percent of the joint workforce.